00:00Here's the headline in a very newsy set of minutes.
00:03Several participants indicated that they would have supported a two-sided description of the
00:09committee's future interest rate decisions, reflecting the possibility that upward adjustments
00:14could be appropriate. The focus of the January meeting on inflation largely rather than jobs
00:20and concern that bringing it down had stalled. Officials anticipated inflation would move down
00:27this year, but the pace and timing remained uncertain. The continuing rise in prices driven
00:32by tariffs, the minutes say. The effects would likely start to diminish this year, and ongoing
00:38moderation in housing prices would also help. High productivity growth from technology might also put
00:45downward pressure on inflation. And a few participants mentioned that companies were telling them they are
00:51automating more operations to try to offset some price increase needs. Most participants, however,
00:58cautioned that progress toward the two percent objective might be slower and more uneven than
01:03generally expected, and judged that the risk of inflation running persistently above the committee's
01:09objective was meaningful. Some cited reports from business contacts expecting to raise prices this
01:15year. The labor market, the committee's big concern last year, was less of a concern this year. The vast
01:22majority of participants judged, the minutes say, that labor market conditions had been showing some
01:28signs of stabilization and that downside risks to the labor market had diminished. Still, most agreed
01:34downside risks to the labor market remained in place, particularly as the labor supply diminished.
01:40Overall, the economy appeared to be expanding at a solid pace with resilient consumer spending and
01:47robust business investment, particularly in technology. Several, though, suggested a lot of that was due to
01:54spending by higher income consumers. Lower income spending was soft. There was a long discussion of
02:01markets, with several commenting on high asset valuations and historically low credit spreads. Some saw
02:08vulnerabilities in AI, including elevated equity valuations and gains concentrated in a small number
02:16of companies. Several highlighted concern about the private credit sector, and others commented on risks
02:22associated with hedge funds and rising leverage. Finally, the January meeting is when the Open Market
02:29Committee elects its officers for the year. Jay Powell, again, named chair of the committee, but the minutes say
02:35until the selection of their successors at the first meeting of 2027. Mike, what is most notable? Because
02:42investors seem to be taking this in stride. Well, this is the first commentary from anybody at the Fed about
02:48the
02:48possibility of rate increases. Several refers to only two or three members, and we kind of know who those members
02:57might be. But the idea that they did put the idea out there is something that we haven't seen in
03:03years. And so it does
03:05become a significant talking point as we go forward and watch to see what inflation does. The emphasis
03:12clearly shifting to inflation at this meeting from last year's focus on jobs. Hey, Mike, a couple of the
03:18headlines that are worth repeating. Several saw more cuts of inflation declines as expected, yet
03:23most cautioned disinflation could be slower than expected. What could lead to slower disinflation?
03:30Well, they're concerned about tariff price increases, and maybe they don't fade out as fast. And then
03:36additional demand in the economy, because we're going to get some stimulus from tax refunds, and because of
03:42all the spending on AI, might also push prices higher. So there's concerns that inflation, while it may not
03:50rise significantly, could stabilize at a higher than desired level. And that might lead the Fed to have to do
03:56something about it. We also had Kevin Hassett out there on a New York Fed tariff study. And I got
04:01to
04:01ask you about that. He is, of course, President Trump's NEC director. And he says that a New York Fed
04:08study showed that the US companies bearing most of the tariff burden is an embarrassment. And the people
04:16associated with it should be disciplined. He spoke about this earlier on CNBC. Here's exactly what he had
04:21to say. He said what they've done is they put out a conclusion, which has created a lot of news
04:26that's highly
04:27partisan based on an analysis that wouldn't be accepted in a first semester econ class. I've been in that first
04:33semester econ class. So, Mike, Fed researchers found nearly 90% of the economic burden from tariffs last year were
04:40borne by US companies and consumers. What say you, Mike McKee, and the folks that you talk to, the economic
04:45community, who really bears the cost of those tariffs? Companies and consumers in the United
04:51States. Mr. Hassett's comments seem to have adopted the attack dog language of the Trump administration
04:59much more than even Kevin had done before, maybe because he's not a candidate for Fed chair at this
05:04point. But you got to point out that the New York Fed, by saying 90% is picked up by
05:09Americans,
05:10is the outlier here. Because a study by the University of Chicago found 99%. A study by the CBO found
05:1995%.
05:20The Kiel Institute in Germany found 94%. So, all of these people found that Americans are buying 90% or
05:30more, or paying 90% or more of the tariffs. So, I think Mr. Hassett has looked at it the
05:36wrong way,
05:37and obviously, the Trump administration doesn't like criticism.
05:41Okay, good to have that on the program, Mike. Just before we let you go, the jobless boom,
05:45a most read story on the Bloomberg terminal about the unprecedented jobless boom in the US. How
05:50economists are warning that the US economy is vulnerable to shocks because the labor market
05:55is not growing. Some are predicting that economic growth will slow due to stagnant labor markets.
05:59Can't productivity increase as a result?
06:02Well, productivity can...
06:04Of technology, excuse me, as a result of technology.
06:06Well, that can happen. The question is, how fast does the technology get adopted, and how quickly,
06:12and how deeply does it get adopted to drive productivity significantly higher? The concern
06:20about the labor market and the jobless recovery is reflected in these minutes, and members of the
06:25Open Market Committee did talk about that as a possibility, a possible risk to the economy.
06:31Although, as I said, inflation was sort of their number one concern this time.
06:34Okay.
06:34Okay.
06:34Okay.
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